InnoCare Revs Up for Next Phase With Strong Results, IPO Plan

Sales of the company’s key Orelabrutinib cancer drug doubled in the first half of the year, contributing to a 142% revenue jump for the period

Key Takeaways:

• InnoCare Pharma’s revenue surged 142% in the first half of the year, but the company still lost money due to soaring R&D expenses and foreign exchange losses
• The company will use 4 billion yuan from a Shanghai STAR Market IPO to boost production and accelerate its product commercialization

By Molly Wen

Chinese drug stocks have cooled noticeably in the past year, as investors grow impatient for the dozens of listed startups to show progress in their march toward profitability. But InnoCare Pharma Ltd. (9969.HK) has bucked that trend, becoming an investor darling in its class. While sitting comfortably on 6.5 billion yuan ($950 million) in cash reserves, the company is set to raise another 4 billion yuan with a new IPO on Shanghai’s Nasdaq-style STAR Market.

Its 2022 interim results published last week show why investors like the company. Those results show InnoCare’s revenue surged by 142% in the first half of the year to 246 million yuan, as sales of its key product Orelabrutinib doubled to 217 million yuan. But heavy R&D spending, combined with foreign exchange-related losses, kept the company squarely in the red, with its interim loss doubling year-on-year to 441 million yuan. Excluding the foreign exchange factor, its real loss actually shrank year-on-year by around 53 million yuan.

Investors were largely indifferent to the results, with the company’s shares falling 1.4% the day after the announcement. Still, the big premium InnoCare commands versus its peers in terms of valuation show it’s still a relative investor favorite.

Founded in 2015, InnoCare launched its self-developed Orelabrutinib cancer drug in late 2020 after gaining regulatory approval in China. The drug is used to treat late-stage chronic lymphocytic leukemia (CLL), small lymphocytic lymphoma (SLL) and mantle cell lymphoma (MCL).

The company got an additional boost last December when Orelabrutinib was added to the National Reimbursement Drug List covered by China’s national medical insurance for the treatment of the two indications. To date the drug has been sold in over 260 cities, used by more than 5,000 doctors in 1,000 hospitals and has been included in several Chinese Society of Clinical Oncology’s lymphoma diagnosis and therapeutics manuals.

InnoCare has used its abundant supply of cash to license more drugs for the China market to add to its pipeline. Last August, it obtained the license to develop and distribute the CD19 monoclonal antibody Tafasitamab in China from U.S. company Incyte (INCY.US). And in July, Tafasitamab was prescribed for the first time in combination with Lenalidomide at the Boao Lecheng pilot zone for international medical tourism in China’s Hainan province. A diffuse large B-cell lymphoma (DLBCL) patient eligible for the treatment at the Ruijin Hainan Hospital became the first to receive it.

The pilot zone allows innovative drugs, medical equipment and technologies not yet approved for sale throughout China to be used by individual patients in clinical emergencies. The company has also filed to sell the drug combination in Hong Kong.

16 drugs in the pipeline

In addition to the two approved drugs under its belt, InnoCare has another 11 products in the clinical stages and another five in the pre-clinical stage, undergoing over 30 clinical trials at home and abroad. In the first half of the year, its R&D expenses increased by 48% year-on-year to 274 million yuan as more of its drugs entered the clinical trial stage and more phase 3 clinical trials were conducted.

Orelabrutinib is a BTK inhibitor used mainly to treat lymphoma, leukemia and other hematological tumors. Its use for such a major group of targets means the drug could have big market potential. The world’s first BTK inhibitor Ibrutinib, jointly developed by Johnson & Johnson (JNJ.US) and Pharmacyclics, came to market in 2013 and has grown to close to $10 billion in sales last year, making it one of the world’s five best-selling drugs.

Of the world’s five approved BTK inhibitors, Ibrutinib has been the most successful. Zanubrutinib, developed by China’s BeiGene (BGNE.US; 6160.HK; 688235.SH), was approved for sale in China in June 2020. Since it competes directly with Orelabrutinib and made it to market slightly earlier, it holds the upper hand in terms of market share. According to BeiGene’s financials, the drug generated $70.2 million in China in the first half of the year, up 82.7% year-on-year and more than double InnoCare’s Orelabrutinib sales for the period.

A report published by SPDB International said that InnoCare will work hard to get more of its products onto the National Reimbursement Drug List, which by its estimate would raise its sales in the latter half of the year by 30% to 35% over the first six months.

The company has filed for approval of Orelabrutinib’s use for two new indications, waldenstrom’s macroglobulinemia (WM) and marginal zone lymphoma (MZL), hoping to get the green light for those next year. Currently, China has 45,000 MZL patients and no domestically-developed BTK inhibitors to treat the disease. Accordingly, a green light for Orelabrutinib to treat the disease could give the company a nice boost if its drug is the first domestically developed product to market.

Strong cash position

China’s securities regulator approved InnoCare’s application for an IPO on Shanghai’s STAR Market in early August, paving the way for the company to become the fourth innovative drug company to be listed in both mainland China and Hong Kong.

But InnoCare doesn’t have much urgent need for the cash, with its interim financials showing it had 6.5 billion yuan in cash and cash equivalents at the end of June. Still, the 4 billion yuan it plans to raise in the upcoming IPO will come in handy to bankroll the company’s further efforts to commercialize its products, carry out clinical trials and ramp up production capacity.

Its production base in Guangzhou was approved for commercial production in June and started making Orelabrutinib on June 30, marking an important step in InnoCare’s goal of achieving independent production. Meanwhile, the company also plans to build a drug development base in Beijing consisting of its headquarters, a drug R&D center and a production facility.

While fundraising seems like a breeze for the company these days, its stock has been in the doldrums lately. The shares have trended down in the past year since reaching an historical high of HK$32 last July. And at their latest levels in the HK$11 to HK$12 range, the stock isn’t too far above its IPO price of HK$8.95 from 2020.

In terms of valuations, InnoCare’s price-to-sales (P/S) ratio of 31 times is far larger than BeiGene and Innovent Biologics (1801.HK), whose ratios are projected to reach 15 times and 10 times. That seems to show investors are rather confident about InnoCare’s prospects and are willing to pay a handsome premium for the stock.

To subscribe to Bamboo Works weekly free newsletter, click here